Sales Taxes and Internet Commerce

42 Pages Posted: 28 Apr 2012 Last revised: 4 Apr 2015

Liran Einav

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Daniel T. Knoepfle

Uber Technologies Inc.

Jonathan Levin

Stanford University - Department of Economics; Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Neel Sundaresan

eBay Research Labs

Date Written: April 2012

Abstract

We estimate the sensitivity of Internet retail purchasing to sales taxes using data from the eBay marketplace. Our first approach exploits the fact that seller locations are revealed only after buyers have expressed interest in an item by clicking on its listing. We use millions of location "surprises" to estimate price elasticities with respect to the effective sales tax. We then use aggregated data to estimate cross-state substitution parameters, and substitution between offline and online purchases, relying on the variation in state and local sales taxes, and on changes in these rates over time. We find substantial sensitivity to sales taxes. Using our item-level approach, we find a price elasticity of around -2 for interested buyers. Using our aggregate approach, we find that a one percentage point increase in a state's sales tax increases online purchases by state residents by just under two percent, but decreases their online purchases from home-state retailers by 3-4 percent.

Suggested Citation

Einav, Liran and Knoepfle, Daniel T. and Levin, Jonathan and Sundaresan, Neel, Sales Taxes and Internet Commerce (April 2012). NBER Working Paper No. w18018. Available at SSRN: https://ssrn.com/abstract=2047269

Liran Einav (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-723-3704 (Phone)
928-223-4973 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Daniel T. Knoepfle

Uber Technologies Inc. ( email )

1455 Market St
San Francisco, CA 94103-1331
United States

Jonathan D. Levin

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Neel Sundaresan

eBay Research Labs ( email )

2065 Hamilton Avenue
San Jose, CA
United States

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